Indonesia aims to meet a 23% national renewable energy target by 2025 and South Korea plans to increase its share of renewable electricity production to 20% by 2030.
A new report, “Leveraging fiscal stimulus to improve energy transition: Case of South Korea and Indonesia,” analyzes the underlying opportunities of COVID-19 fiscal stimulus packages in achieving those clean energy and energy transition goals. . The report, produced by Climate Policy Initiative (CPI) in partnership with Seoul National University (SNU), also proposes focused interventions to ensure both a sustainable economic recovery and to accelerate the energy transition agenda. The report is an extension of a previous study by CPI which measures the ‘greenness’ of the COVID-19 recovery packages in Asia’s five biggest economies and their contribution towards country-level climate objectives.
The report finds that the impact of COVID-19 on the energy sectors of Indonesia and South Korea is quite similar. Both countries saw a decline in electricity consumption in the industrial and commercial sectors and an increase in residential electricity demand, mainly as an immediate response to the COVID-19 containment measures. However, energy consumption in the industrial and commercial sectors is expected to go back to business-as-usual once the pandemic is under control in both countries.
The report also highlights that the primary focus of fiscal stimulus in response to the COVID-19 crisis in both countries has been to address health emergencies and to provide support to vulnerable households and businesses for survival. But South Korea managed to seize the opportunity to not only on address health emergencies but also to use the economic recovery momentum to address climate and environmental improvements through the Green New Deal (GND). On the other hand, Indonesia’s fiscal stimulus package, known as the National Economic Recovery or Pemulihan Ekonomi Nasional (PEN) program makes no explicit mention of greenness.
“Allocations supporting energy transition represent only 0.9% of Indonesia’s PEN budget. Bappenas (Ministry of National Development Planning) has published recommendations to build forward better, which includes the importance of clean energy for short-term and long-term economic benefits as well as better job creation than conventional energy, but these have not yet materialized into fiscal stimulus action”, said Tiza Mafira, Associate Director at CPI. “Similar to South Korea’s GND, Indonesia needs fiscal stimulus that would support energy transition while still addressing short-term economic recovery”, she added.
The authors of the report acknowledge that South Korea’s GND and Indonesia’s PEN program could provide significant new impetus to the environmental and climate sectors. However, they note that the structural challenges and short-term policies jeopardize long-term sustainability.
CPI’s Global Managing Director Dr. Barbara Buchner stated that, “We need to leverage public finance wisely. It is even more clear in the wake of COVID that public finance is essential, but limited resources must be deployed for catalytic impact. To ensure public spending is efficiently applied towards longer-term sustainability, fiscal stimulus needs to include specific targets, timelines, sectoral pathways and plans to reduce emissions and stimulate economic recovery.”
The report includes three main recommendations to ensure that the fiscal stimulus supports a strong energy transition leading to a sustainable economic recovery in Indonesia and South Korea. It highlights the definitive need to:
- first, support short-term economic growth while addressing longer-term climate, sustainability, and economic inclusion goals;
- second, ensure public spending is efficiently applied towards longer-term sustainability goals; and
- third, create enabling environments that attract private investment towards green transition projects, while relieving the pressure on public spending.